ater20250331

ater20250331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38937

Aterian, Inc.

(Exact name of registrant as specified in its charter)

Delaware		83-1739858
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

350 Springfield Avenue, Suite 200 Summit, NJ		07901
(Address of principal executive offices)		(Zip Code)

(347) 676-1681

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 par value per share		ATER		The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 13, 2025, the registrant had 8,750,741 shares of common stock, $0.0001 par value per share, outstanding.

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Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholder’s Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Many of these statements can be identified by the use of terminology such as “believes,” “expects,” “intends,” “anticipates,” “plans,” “may,” “will,” “could,” "would,” “projects,” “continues,” “estimates,” “potential,” “opportunity” or the negative versions of these terms and other similar expressions. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as information provided elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the Securities and Exchange Commission (the SEC) on March 25, 2025. You should carefully consider that information before you make an investment decision.

You should not place undue reliance on these types of forward-looking statements, which speak only as of the date that they were made. These forward-looking statements are based on the beliefs and assumptions of the Company’s management based on information currently available to management and should be considered in connection with any written or oral forward-looking statements that the Company may issue in the future as well as other cautionary statements the Company has made and may make. Except as required by law, the Company does not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Quarterly Report on Form 10-Q to reflect later events or circumstances or the occurrence of unanticipated events.

The discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related Notes thereto included in this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ATERIAN, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

	*December 31, 2024*			*March 31, 2025*
ASSETS
Current assets:
Cash	$	17,998		$	14,337
Accounts receivable, net		3,782			3,391
Inventory		13,749			18,144
Prepaid and other current assets		3,190			3,512
Total current assets		38,719			39,384
Property and equipment, net		685			689
Intangibles, net		9,757			9,366
Other non-current assets		381			379
Total assets	$	49,542		$	49,818
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Credit facility	$	6,948		$	7,511
Accounts payable		3,080			6,164
Seller notes		466			471
Accrued and other current liabilities		8,804			8,404
Total current liabilities		19,298			22,550
Other liabilities		227			229
Total liabilities		19,525			22,779
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $0.0001 par value, 500,000,000 shares authorized and 8,750,741 and 8,748,741 shares outstanding at December 31, 2024 and March 31, 2025, respectively		9			9
Additional paid-in capital		742,591			743,374
Accumulated deficit		(711,677	)		(715,573	)
Accumulated other comprehensive loss		(906	)		(771	)
Total stockholders’ equity		30,017			27,039
Total liabilities and stockholders' equity	$	49,542		$	49,818

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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ATERIAN, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

	*Three Months Ended March 31,*
	*2024*			*2025*
Net revenue	$	20,214		$	15,360
Cost of goods sold		7,046			5,936
Gross profit		13,168			9,424
Operating expenses:
Sales and distribution		13,214			9,661
General and administrative		5,232			3,459
Total operating expenses		18,446			13,120
Operating loss		(5,278	)		(3,696	)
Interest expense, net		323			175
Change in fair value of warrant liabilities		(517	)		(55	)
Other expense, net		7			60
Loss before provision for income taxes		(5,091	)		(3,876	)
Provision for income taxes		71			20
Net loss	$	(5,162	)	$	(3,896	)
Net loss per share, basic and diluted	$	(0.76	)	$	(0.52	)
Weighted-average number of shares outstanding, basic and diluted		6,789,955			7,452,957

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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ATERIAN, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

	*Three Months Ended March 31,*
	*2024*			*2025*
Net loss	$	(5,162	)	$	(3,896	)
Other comprehensive loss:
Foreign currency translation adjustments		(49	)		135
Other comprehensive (loss) income		(49	)		135
Comprehensive loss	$	(5,211	)	$	(3,761	)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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ATERIAN, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share and per share data)

	*Three Months Ended March 31, 2024*
	*Common Stock*					*Additional Paid-in*		*Accumulated*			*Accumulated Other Comprehensive*			*Total Stockholders’*
	*Shares*			*Amount*		*Capital*		*Deficit*			*Loss*			*Equity*
BALANCE—January 1, 2024		7,508,246		$	9	$	736,675	$	(699,815	)	$	(838	)	$	36,031
Net loss		—			—		—		(5,162	)		—			(5,162	)
Issuance of shares of restricted common stock		11,668			—		—		—			—			—
Forfeiture of shares of restricted common stock		(42,650	)		—		—		—			—			—
Issuance of common stock		178,780			—		670		—			—			670
Stock-based compensation expense		—			—		1,460		—			—			1,460
Other comprehensive loss		—			—		—		—			(49	)		(49	)
BALANCE—March 31, 2024		7,656,044		$	9	$	738,805	$	(704,977	)	$	(887	)	$	32,950

	*Three Months Ended March 31, 2025*
	*Common Stock*					*Additional Paid-in*		*Accumulated*			*Accumulated Other Comprehensive*			*Total Stockholders’*
	*Shares*			*Amount*		*Capital*		*Deficit*			*Loss*			*Equity*
BALANCE—January 1, 2025		8,750,741		$	9	$	742,591	$	(711,677	)	$	(906	)	$	30,017
Net loss		—			—		—		(3,896	)		—			(3,896	)
Forfeiture of shares of restricted common stock		(2,000	)		—		—		—			—			—
Stock-based compensation expense		—			—		783		—			—			783
Other comprehensive income		—			—		—		—			135			135
BALANCE—March 31, 2025		8,748,741		$	9	$	743,374	$	(715,573	)	$	(771	)	$	27,039

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ATERIAN, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	*Three Months Ended March 31,*
	*2024*			*2025*
OPERATING ACTIVITIES:
Net loss	$	(5,162	)	$	(3,896	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		428			408
Provision for sales returns		64			(72	)
Amortization of deferred financing cost and debt discounts		83			37
Stock-based compensation		1,667			783
Change in deferred tax expense		(5	)		—
Change in inventory provisions		(976	)		86
Change in fair value of warrant liabilities		(517	)		(55	)
Allowance for credit losses		—			(147	)
Changes in assets and liabilities:
Accounts receivable		1,843			538
Inventory		2,846			(4,481	)
Prepaid and other current assets		249			33
Accounts payable, accrued and other liabilities		(526	)		2,898
Cash used in operating activities		(6	)		(3,868	)
INVESTING ACTIVITIES:
Purchase of fixed assets		(36	)		—
Purchase of minority equity investment		(200	)		—
Cash used in investing activities		(236	)		—
FINANCING ACTIVITIES:
Repayments on seller notes		(153	)		—
Borrowings from MidCap credit facilities		11,453			10,296
Repayments for MidCap credit facilities		(13,244	)		(9,777	)
Insurance obligation payments		(254	)		(235	)
Insurance financing proceeds		—			156
Cash provided by (used in) financing activities		(2,198	)		440
Foreign currency effect on cash and restricted cash		(49	)		123
Net change in cash and restricted cash for the year		(2,489	)		(3,305	)
Cash and restricted cash at beginning of year		22,195			19,143
Cash and restricted cash at end of year	$	19,706		$	15,838
RECONCILIATION OF CASH AND RESTRICTED CASH:
Cash		17,545			14,337
Restricted Cash—Prepaid and other current assets		2,032			1,372
Restricted cash—Other non-current assets		129			129
TOTAL CASH AND RESTRICTED CASH	$	19,706		$	15,838

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	402		$	200
Cash paid for taxes	$	3		$	5
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash consideration paid to contractors	$	620		$	—
Non-cash minority equity investment	$	50		$	—

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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Aterian, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2025 (Unaudited)

1.	COMPANY OVERVIEW

Aterian, Inc. (the "Company") is a consumer products company that predominantly operates through online retail channels such as Amazon, Walmart, and Target and its own direct to consumer websites. The Company operates its owned brands, which were either incubated or purchased, selling products in multiple categories, including home and kitchen appliances, kitchenware, air quality appliances, health and beauty products and essential oils.

Our primary brands include Squatty Potty, HomeLabs, Mueller Living, PurSteam, Healing Solutions, and Photo Paper Direct ("PPD").

Headquartered in New Jersey, the Company also maintains offices in China, the Philippines, and the United Kingdom.

Liquidity and Going Concern

We are subject to inherent risks and uncertainties associated with the development of our enterprise. In this regard, substantially all of our efforts to date have been devoted to the development and sale of our products in the marketplace, which includes our investment in organic growth at the expense of short-term profitably, our investment in incremental growth through mergers & acquisitions, our recruitment of management and technical staff, and raising capital to fund the development of our enterprise. As a result of these efforts, we have incurred significant losses and negative cash flows from operations since our inception and expect to continue to incur such losses, at a reduced level, and negative cash flows in the near term. However, we anticipate improvements over time as we work toward achieving a sustainable scale of profitability. We have also experienced declining revenues due to macroeconomic factors, including increased interest rates and reduced consumer discretionary spending, and other factors, and we are focusing our efforts on a more limited number of products. In addition, our recent financial performance has been adversely impacted by inflationary pressures and reduced consumer spending.

In addition, our future results could be materially impacted by recent changes to U.S. trade policy, including the imposition and expansion of tariffs on imports, specifically from China. A substantial portion of our products are sourced from China, and as such, the increased tariff rates will materially raise our cost of goods sold and will place pressure on our margins. While we are actively pursuing mitigation strategies—including supplier negotiations, selective price adjustments, potential geographic diversification of sourcing and fixed cost reductions—there is significant uncertainty regarding the effectiveness of these mitigation efforts. Moreover, any future changes in tariff policy or implementation of additional trade barriers could further impact our business. These trade-related uncertainties, in conjunction with our existing financial condition, raise concern about our ability to remain in compliance with financial covenants under our credit agreements and may adversely impact our liquidity position.

In order to execute our growth strategy, we have historically relied on outside capital through the issuance of equity, debt, and borrowings under financing arrangements (collectively “outside capital”) to fund our cost structure, and we expect to continue to rely on outside capital for the foreseeable future, specifically if we pursue material M&A opportunities. While we believe we will eventually reach a level of profitability to sustain our operations, there can be no assurance we will be able to achieve such profitability or do so in a manner that does not require our continued reliance on outside capital. Moreover, while we have historically been successful in raising outside capital, there can be no assurance we will be able to continue to obtain outside capital in the future or do so on terms that are acceptable to us.

As of the date the accompanying Condensed Consolidated Financial Statements were issued (the “issuance date”), we evaluated the significance of the following adverse financial conditions in accordance with Accounting Standard Codification 205-40, Going Concern:

• Since our inception, we have incurred significant losses and used cash flows from operations to fund our enterprise. In this regard, during the three months ended March 31, 2025, we incurred a net loss of $3.9 million and used net cash flows from operations of $3.9 million. In addition, as of March 31, 2025, we had unrestricted cash of $14.3 million available to fund our operations and an accumulated deficit of $715.6 million.

• We are required to remain in compliance with certain financial covenants required by the MidCap Credit facility (See Note 7, Credit Facility and Warrants). We were in compliance with these financial covenants as of March 31, 2025, and expect to remain in compliance through at least June 30, 2026. However, if our mitigation strategies to address the impact of tariffs are unsuccessful, we can provide no assurances that we will remain in compliance with our financial covenants. During February 2024, the Company amended its terms with Midcap Credit Facility extending the term until December 2026 and amending certain financial covenants with favorable terms. Further, absent of our ability to generate cash inflows from our operations or secure additional outside capital, we will be unable to remain in compliance with these financial covenants. In the event we are unable to remain in compliance with these financial covenants (or other non-financial covenants required by the MidCap Credit Facility), and we are unable to secure a waiver or forbearance, MidCap may, at its discretion, exercise any and all of its existing rights and remedies, which may include, among others, accelerating repayment of the outstanding borrowings and/or asserting its rights in the assets securing the loan.

• As of the issuance date, we have no firm commitments to secure additional outside capital from lenders or investors. While we expect to continue to explore raising additional outside capital, specifically if we pursue material M&A opportunities, there can be no assurance we will be able to obtain capital or do so on terms that are acceptable to us. Accordingly, absent our ability to generate cash inflows from our operations and/or secure additional outside capital in the near term, we may be unable to meet our obligations as they become due over the next twelve months beyond the issuance date.

• The Company's plan is to continue to closely monitor our operating forecast, to pursue additional sources of outside capital on terms that are acceptable to us, and to secure a waiver or forbearance from MidCap if we are unable to remain in compliance with one or more of the covenants required by the MidCap Credit Facility. If some or all of our plans prove unsuccessful, we may need to implement short-term changes to our operating plan, including but not limited to delaying expenditures, reducing investments in new products, or reducing our sale and distribution infrastructure. We may also need to seek long-term strategic alternatives, such as a significant curtailment of our operations, a sale of certain of our assets, a divestiture of certain product lines, a sale of the entire enterprise to strategic or financial investors, and/or allow our enterprise to become insolvent.

On May 14, 2025, the Company announced a fixed cost reduction plan, which includes a workforce reduction affecting approximately 20 employees. The Company expects to substantially complete this reduction by the end of the third quarter of 2025. In connection with this plan, the Company anticipates recognizing restructuring charges of approximately $2.3 million, primarily related to severance, during the second quarter of 2025. Severance payments are expected to be made through the second quarter of 2026. Combined with other vendor-related cost reductions, the plan is expected to generate annualized savings of approximately $5 to $6 million.

Although significant strides have been made in reducing our operating losses and strengthening our balance sheet, uncertainties persist in our business operations and the forecasting of our business. These uncertainties raise substantial doubt about our ability to continue as a going concern. The accompanying Condensed Consolidated Financial Statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of these uncertainties.

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The Condensed Consolidated Financial Statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Unaudited Interim Financial Information—The accompanying interim Condensed Consolidated Financial Statements are unaudited and have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company's financial position as of March 31, 2025 and the results of its operations and its cash flows for the periods ended March 31, 2025 and 2024. The financial data and other information disclosed in these notes related to the three months ended March 31, 2025 and 2024 are also unaudited. The results for the three months ended March 31, 2025 are not necessarily indicative of results to be expected for the year ending December 31, 2025, any other interim periods or any future year or period.

The Condensed Consolidated Balance Sheet as of December 31, 2024, presented herein, has been derived from the Company’s audited Consolidated Financial Statements for the fiscal year then ended. These unaudited Condensed Consolidated Interim Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 25, 2025 (“Annual Report”) and have been prepared on a consistent basis with the accounting policies described in Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report. Our accounting policies did not change during the three months ended March 31, 2025, other than with respect to the new accounting pronouncements adopted as described in Note 2, Recent Accounting Pronouncements.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial statements of the Company as of March 31, 2025 and for the three months then ended.

Use of Estimates—Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period covered by the condensed consolidated financial statements and accompanying notes. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates.

Principles of Consolidation—The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Restricted Cash—As of December 31, 2024, the Company has classified the following as restricted cash: $0.1 million related to its Chinese subsidiary within “Other Non-current Assets” on the Condensed Consolidated Balance Sheets and $1.0 million related to a letter of credit within "Prepaid and Other Current Assets" on the Condensed Consolidated Balance Sheets.

As of March 31, 2025, the Company has classified the following as restricted cash: $0.1 million related to its Chinese subsidiary within “Other Noncurrent Assets” on the Condensed Consolidated Balance Sheets, $1.0 million related to a letter of credit and $0.4 million for cash sweeps account related to the Midcap Credit Facility within "Prepaid and Other Current Assets" on the Condensed Consolidated Balance Sheets.

Inventory and Cost of Goods Sold—The Company’s inventory consists almost entirely of finished goods. The Company currently records inventory on its balance sheet on a first-in first-out basis, or net realizable value, if it is below the Company’s recorded cost. The Company’s costs include the amounts it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses, as applicable. The valuation of our inventory requires us to make judgments, based on available information such as historical data, about the likely method of disposition, such as through sales to individual customers or liquidations, and expected recoverable values of each disposition category. Changes to the relevant assumptions and projections would impact our consolidated financial results in periods subsequent to recording these estimates. If we anticipate a change in assumptions such as future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required. Conversely, if we are able to sell inventories that had been written down to a level below the ultimate realized selling price in a previous period, sales would be recorded with a lower or no offsetting charge to cost of sales.

The “Cost of goods sold” line item in the Condensed consolidated statements of operations consists of the book value of inventory sold to customers during the reporting period. When circumstances dictate that the Company use net realizable value as the basis for recording inventory, it bases its estimates on expected future selling prices less expected disposal costs.

Accounts Receivable—Accounts receivable are stated at historical cost less allowance for credit losses. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any accounts should be written off based on a past history of write-offs, collections and current credit conditions. A receivable is considered past due if the Company has not received payments based on agreed-upon terms. The Company generally does not require any security or collateral to support its receivables. The Company performs ongoing evaluations of its customers and maintains an allowance for credit losses. As of December 31, 2024, the Company had an allowance for credit losses of $0.1 million. As of March 31, 2025, the Company did not have an allowance for credit losses.

Revenue Recognition—The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company derives its revenue from the sale of consumer products. The Company sells its products directly to consumers through online retail channels and through wholesale channels.

For direct-to-consumer sales, the Company considers customer order confirmations to be a contract with the customer. Customer confirmations are executed at the time an order is placed through third-party online channels. For wholesale sales, the Company considers the customer purchase order to be the contract.

For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment date. As a result, the Company has a present and unconditional right to payment and record the amount due from the customer in accounts receivable.

Revenue from consumer product sales is recorded at the net sales price (transaction price), which includes an estimate of future returns based on historical return rates. There is judgment in utilizing historical trends for estimating future returns. The Company’s refund liability for sales returns was $0.3 million at December 31, 2024 and $0.2 million at March 31, 2025, which is included in accrued and other current liabilities on the Condensed Consolidated Balance Sheets and represents the expected value of the refund that will be due to its customers.

The Company evaluated principal versus agent considerations to determine whether it is appropriate to record platform fees paid to Amazon as an expense or as a reduction of revenue. Platform fees are recorded as sales and distribution expenses and are not recorded as a reduction of revenue because the Company owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct Amazon, or similarly direct other third-party logistics providers (“Logistics Providers”), to return the Company’s inventory to any location specified by the Company. It is the Company’s responsibility to make customers whole following any returns made by customers directly to Logistic Providers and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk (i.e., credit card charge backs), establishes prices of its products, can determine who fulfills the goods to the customer (Amazon or the Company) and can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is the principal in this arrangement.

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Net Revenue by Category. The following tables set forth the Company’s net revenue disaggregated by sales channel and geographic region based on the billing addresses of its customers:

	*Three Months Ended March 31, 2024*
	(in thousands)
	*Direct*		*Wholesale/Other*		*Total*
North America	$	18,720	$	145	$	18,865
Other		1,349		—		1,349
Total net revenue	$	20,069	$	145	$	20,214

	*Three Months Ended March 31, 2025*
	(in thousands)
	*Direct*		*Wholesale/Other*		*Total*
North America	$	13,587	$	406	$	13,993
Other		1,367		—		1,367
Total net revenue	$	14,954	$	406	$	15,360

Net Revenue by Product Categories. The following tables set forth the Company’s net revenue disaggregated by product categories for the three months ended March 31, 2025 and 2024:

	*Three Months Ended March 31,*
	*2024*		*2025*
	(in thousands)
Heating, cooling and air quality	$	3,204	$	1,339
Kitchen appliances		1,920		1,792
Health and beauty		3,313		3,054
Cookware, kitchen tools and gadgets		1,395		901
Home office		2,031		1,584
Housewares		4,885		3,955
Essential oils and related accessories		3,208		2,733
Other		258		2
Total net revenue	$	20,214	$	15,360

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Intangibles—We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset's carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows by comparing the carrying value of the asset group to the undiscounted cash flows. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique.

These fair value measurements require significant judgements using Level 3 inputs, such as discounted projected future cash flows, which are not observable from the market, directly or indirectly. There is uncertainty in the projected future cash flows used in the Company’s impairment analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used in the analysis change in the future, the Company may be required to recognize additional impairment charges in future periods. Key assumptions in the impairment models included a discount and royalty rate. The Company believes our procedures for determining fair value are reasonable and consistent with current market conditions as of March 31, 2025.

There were no triggering events to test intangibles for impairment loss during the three months ended March 31, 2024.

During the three months ended March 31, 2025, the implementation of new tariffs raised concerns about potential negative effects on the Company’s revenue and profitability. As a result, the Company identified a triggering event and performed a recoverability test for the relevant asset groups. Based on this assessment, the Company concluded that the undiscounted future cash flows expected to be generated from these asset groups exceeded their carrying amounts. Accordingly, no impairment was recognized as of March 31, 2025.

We will continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions result in corresponding changes to our expectations about future estimated cash flows. If our adjusted expectations of the operating results do not materialize, we may be required to record intangible impairment charges, which may be material.

Fair Value of Financial Instruments—The Company’s financial instruments, including net accounts receivable, accounts payable, and accrued and other current liabilities are carried at historical cost. At March 31, 2025, the carrying amounts of these instruments approximated their fair values because of their short-term nature. The Company’s credit facility is carried at amortized cost at December 31, 2024 and March 31, 2025 and the carrying amount approximates fair value as the stated interest rate approximates market rates currently available to the Company.

The fair value of the stock purchase warrants issued in connection with the Company’s common stock offering on March 1, 2022 were measured using the Black-Scholes model. Inputs used to determine the estimated fair value of the warrant liabilities include the fair value of the underlying stock at the valuation date, the term of the warrants, and the expected volatility of the underlying stock. The significant unobservable input used in the fair value measurement of the warrant liabilities is the estimated term of the warrants. Upon the issuance of the stock purchase warrants, the Company evaluated the terms of each warrant to determine the appropriate accounting and classification pursuant to FASB ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), and FASB Accounting Standards Codification Topic 815, Derivatives and Hedging (“ASC 815”). Based on the Company’s evaluation and due to certain terms in the warrant agreements, it concluded the stock purchase warrants should be classified as liability with subsequent remeasurement as long as such warrants continue to be classified as liabilities.

Assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3—Unobservable inputs that are supported by little or no market data for the related assets or liabilities.

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The following tables summarize the fair value of the Company’s financial assets that are measured at fair value as of December 31, 2024 and March 31, 2025 (in thousands):

December 31, 2024

Fair Value Measurement Category

Level 1

Level 2

Level 3

Liabilities:

Fair value of warrant liabilities

—

109

March 31, 2025

Fair Value Measurement Category

Level 1

Level 2

Level 3

Liabilities:

Fair value of warrant liabilities

—

A summary of the activity of the Level 3 liabilities carried at fair value on a recurring basis for the three months ended March 31, 2024 and March 31, 2025 is as follows (in thousands):

	*March 31, 2024*
Warrants liabilities as of January 1, 2024	$	1,033
Change in fair value of warrants		(517	)
Warrants liabilities as of March 31, 2024	$	516

	*March 31, 2025*
Warrants liabilities as of January 1, 2025	$	109
Change in fair value of warrants		(55	)
Warrants liabilities as of March 31, 2025	$	54

Recent Accounting Pronouncements

In August 2023, the FASB finalized ASU 2023-09, Income Taxes (Topic 740). This ASU provides for certain updates to enhance the transparency about companies’ exposure to changes in tax legislation and the global tax risk they may face. Under the guidance, companies will be required to provide a breakout of amounts paid for taxes between federal, state, and foreign taxing jurisdictions, rather than a lump sum amount. Further, the rate reconciliation will require disaggregation into eight specific categories, with these categories further disaggregated by jurisdiction and for amounts exceeding 5 percent of their domestic tax rate. The rate reconciliation will need to also disclose both dollar amounts and percentages. This standard is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024- 03.

We have reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

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3.	ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of December 31, 2024 and March 31, 2025 (in thousands):

	*December 31, 2024*			*March 31, 2025*
Trade accounts receivable	$	3,929		$	3,391
Allowance for credit losses		(147	)		-
Accounts receivable, net	$	3,782		$	3,391

4.	INVENTORY

Inventory consisted of the following as of December 31, 2024 and March 31, 2025 (in thousands):


	*December 31, 2024*		*March 31, 2025*
Inventory on-hand	$	12,484	$	15,752
Inventory in-transit		1,265		2,392
Inventory	$	13,749	$	18,144

The Company’s inventory on-hand is held either with Amazon or the Company’s other third-party warehouses. The Company does not have any contractual right of returns with its contract manufacturers. The Company’s inventory on-hand held by Amazon was approximately $3.5 million as of December 31, 2024 and March 31, 2025, respectively.

5.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid and other current assets consisted of the following as of December 31, 2024 and March 31, 2025 (in thousands):

	*December 31, 2024*		*March 31, 2025*
Prepaid inventory	$	904	$	819
Restricted cash

SEC Form 10-Q filed by Aterian Inc.